(208) 880-0316

Bi-Weekly Mortgage Programs

Many of my clients ask me about whether or not it is smart to enter into a contract to make bi-weekly payments on their mortgage. Do you know what this means?

In a bi-weekly mortgage program, the amortization schedule is accelerated. For example, with a 30-year amortization schedule, the borrower makes 12 payments per year. In a bi-weekly arrangement, the borrower makes 26 ‘half’ payments, which allows the loan to be paid off in 22.8 years instead of 30 years. It’s the same as making 13 monthly payments.

On the surface, this is great for my clients. This ultimately saves them thousands of dollars in interest rate fees. However, bear in mind that bi-weekly programs usually have some type of setup, transaction, and maintenance fees associated with them. A custodian manages the bi-weekly payments in a trust account (and also makes a profit on the interest accrued there). Because the lender really doesn’t accept partial payments, this middle man is still making monthly payments to the lender on some type of pre-payment schedule.

It is important for you to know that you can achieve the same results without hiring an outside company to do this. As long as your loan program carries no pre-payment penalty, pre-payments can be made on a monthly or annual basis to shorten the loan term to save money on interest or remove PMI charges on loans that have less than a 20% down payment. How do you do this? Simply indicate the extra payment is being made toward the principal balance, and have the discipline to make these extra payments as scheduled. (A-39)

For more tips and ideas on mortgage planning, email me directly or give me a call (208-880-0316). I’m here to help!